In 1986, the British Bankers’ Association (BBA) created the London Interbank Offered Rate (LIBOR) in response to the need for a reliable, unified benchmark rate for calculating loans between British banks. It soon developed into one of the primary global interest rate benchmarks for debt instruments ranging from government bonds to home mortgages, credit cards, student loans and many others. Based on a basket of five currencies—the U.S. dollar, the Euro, the Pound Sterling, Swiss Franc and Japanese Yen—LIBOR was relied upon by U.S. financial institutions for rating trillions of dollars’ worth of debt. But a little more than two years after the catastrophic LIBOR rate-fixing scandal broke, U.S. regulators are poised to leave LIBOR in favor of an alternative benchmark. Figuring out how to set the interest rate for $160 trillion in U.S. financial products and debt is no simple task.
On the 10th of October 1789, Dr. Guillotin (original spelling without the e) proposed to the French Assembly that the penal code be revised to provide that capital punishment executions be carried out not by torture or by hanging from the gallows but by simple decapitation. Thus, the guillotine became the standard instrument for death penalty cases, not only in France, but throughout Europe. Fast forward 227 years later, and European officials are once again mulling over use of the guillotine throughout Europe—but this time as a tool to stop a run on failed banks.
The Financial Crimes Enforcement Network (FinCEN) is a Treasury Department bureau that collects and analyzes data about financial transactions in an effort to combat both domestic and international money laundering. It is one of the primary enforcement agencies of the Bank Secrecy Act (BSA), which is America’s principal anti-money laundering (AML) statute. Although FinCEN’s BSA authority was initially employed for tracking underworld money laundering, terrorist financing, and other financial crimes conducted via banks and similar money services businesses, it has gradually been expanded in scope and definition to regulate additional nonconventional investment sources. FinCEN is now poised to go after investment crowdfunding portals for SAR compliance.
Under the whistleblower provisions of the Dodd-Frank Wall Street Reform Act of 2010 (Dodd-Frank), both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) were empowered to extend monetary awards to whistleblowers who provide tips and original information to the two agencies that lead to enforcement actions with sanctions that exceed $1 million. The “winning whistleblower” can receive an award valued between 10 percent and 30 percent of the amount of the penalties collected. Since its inception in 2011, the SEC’s whistleblower program alone has paid over $57 million to whistleblowers. And the odds of winning just keep getting better.
In 2012, the Jumpstart Our Business Startups Act (JOBS Act) was signed into law in order to, among other things, encourage the funding of small businesses by easing various securities regulations. Included in the legislation were various directives to the Securities and Exchange Commission (SEC) to revise some of its rules in order to implement the act. In early May, the SEC announced formal approval of revisions to its rules related to the thresholds for registration, termination of registration, and suspension of reporting under Section 12(g) of the Exchange Act.
In 1995, Nick Leeson, a trader for the world’s second oldest merchant bank, Baring’s Bank, brought about the collapse of the 230-year-old financial institution by engaging in highly speculative derivatives trades that cost the bank $1.3 billion in losses. The crash, deemed the granddaddy of trader misconduct at the time, was hardly an isolated event but rather a harbinger of greater trading scandals to come. In the twenty-one years since Mr. Leeson’s notorious trading fiasco, six other major trading scandals have been prosecuted with defendants being convicted either by plea bargains or trial. The $14 billion in losses over the past two decades ranged from a “paltry” $456 million to a whopping $7.2 billion. All of which, of course, raises the question: are trading scandals part and parcel of the financial markets game?
In March 2014, the US Commodity Futures Trading Commission (CFTC) entered into a Memorandum of Understanding (MOU) with securities regulators in four Canadian provinces for enhancing interagency cooperation and exchanges of information regarding financial entities that operate on a US-Canadian cross-border basis. Last month, the current CFTC chairman expanded the MOU to include three more provinces in a sign that both countries recognize a growing need for greater supervision and oversight of such regulated entities. The need to sign such agreements with each separate province is a diplomatic anomaly necessitated by Canada’s steadfast reluctance to federalize its securities regulation.
The Financial Industry Regulatory Authority (FINRA) is the nongovernmental watchdog group authorized by Congress to maintain financial markets’ integrity and protection of investors via the enforcement of rules for the fair and honest operation of the securities industry in the United States. Recently, FINRA addressed the issue of powers of attorney given to financial advisors or to an investor’s family member and offered its tips and warnings regarding how investors can protect themselves while utilizing such powers of attorney.
On December 1, 2015, Rule 37(e), the new Federal Rule of Civil Procedure, became part of federal litigation law in order to address the problem of disparate circuit court rulings regarding the failure of a party to preserve electronically stored information (ESI). Despite the intent to homogenize ESI rulings, decisions handed down during the past three months seem to suggest that the courts are still grappling with the proper application of the new rule.
On April 14, 2016, the European Union passed its first comprehensive overhaul of personal and business data protection laws since the dawn of widespread Internet usage in 1995. Under the General Data Protection Regulation (GDPR), citizens will be able to take back control over their personal data, and companies doing business in the EU will benefit from a simplified and unified data regulatory environment in which to operate.